Big Four paid millions to advise Brussels on tax policy

The Big Four accounting firms secured contracts worth millions of euros from the European Commission over the past five years to advise on tax policy, fuelling concerns about conflicts of interest given their involvement in several tax avoidance scandals.

There has been mounting criticism of the tax advice provided by the Big Four — Deloitte, KPMG, EY and PwC — following the Luxembourg leaks scandal in 2014 that revealed how many of the world’s largest companies negotiated sweetheart tax deals in the Grand Duchy, often with the help of the accounting firms.

This was followed by the Panama Papers leak of thousands of financial documents in 2016 and the Paradise Papers scandal last year, which again exposed the widespread use of offshore tax avoidance structures by wealthy individuals and companies — often facilitated by law and accounting firms.

Despite these controversies, the Big Four received nearly €8m between them from the European Commission’s Directorate-General for Taxation and Customs Union in 2016.

Another €10.5m was awarded to PwC, Deloitte, and KPMG by the same organisation in January this year for studies on “various taxation and customs issues”, according to Corporate Europe Observatory (CEO), a Brussels-based campaign and research group that analysed tenders awarded to the firms by the commission.

Karthik Ramanna, professor at the University of Oxford’s Blavatnik School of Governance, said of the figures: “Of course this makes the Big Four look bad. But it’s hardly news these days to call out the Big Four on ethics violations.

“The folks who look really silly are the European Commission. They should know better than to invite the foxes to consult on henhouse security measures.”

The commission’s tax department additionally awarded nearly €7m to PwC, Deloitte and EY in 2014 for management consultancy services “to carry out studies and comparative analyses in various tax and customs areas”, according to CEO.

The organisation said the figures showed that “major tax avoidance facilitators [are] being paid to produce the studies and background material used as a basis for decision-making around tax . . . Outsourcing tax expertise to tax avoidance enablers creates a clear conflict of interest.”

The commission defended its decision to hire the Big Four. It said: “We are surprised this is even a story. The commission regularly asks for research from consultancies all over the world. These are just four out of thousands of companies carrying out studies for us.” Jean-Claude Juncker, commission president, has previously faced criticism over his former role as Luxembourg’s prime minister during the period his government agreed to hundreds of tax deals with multinationals.

Erik Gordon, a professor at the University of Michigan’s Ross School of Business, said the views of the Big Four were relevant to policy decisions. “Security experts hire hackers because hackers give them useful advice. Doctors have personal interests at stake when healthcare policy is formulated but you wouldn’t want to leave them out of the formulation process,” he said.

“Policy that has been developed without the expertise or buy-in of interested parties often is policy that fails miserably because its substance is bad and its support is weak.”

Deloitte, KPMG, PwC and EY advised several of the individuals and companies named in the Paradise Papers leak of 13.4m financial documents from Appleby, the offshore law firm.

The firms said at the time that they worked in accordance with all applicable laws and regulations.

KPMG, PwC and Deloitte did not respond to a request for comment.

EY said: “EY believes that robust, transparent and consistent tax systems are fundamental to the effective functioning of the global economy . . . We support transparency in dealings with tax administrations to help build trust in the system.”